Abba Eban, the veteran Israeli diplomat, observed of negotiations with neighbouring states in the1970s that: "The Arabs never miss an opportunity to miss an opportunity."

Today, the jibe is better suited to Binyamin Netanyahu, Israeli prime minister, whose resistance to serious engagement with the Palestinians has been practised over two decades. His reluctance to extend a freeze on expanding Jewish settlements on the West Bank is only the latest example. The moratorium expires today. If it is not renewed, the Palestinian president, Mahmoud Abbas, could walk away from direct talks sponsored by the US.

The generous view of Mr Netanyahu's stance is that his ruling coalition, which relies on the support of far-right MPs, might collapse if he ordered a halt to settlement building. His hands are tied by domestic politics. But pursuing that logic is a recipe for perpetual deadlock. Israel is negotiating from a position of total military superiority. Successive prime ministers have pursued a strategy of dismissing the credentials of Palestinians as "not partners for peace" and using overwhelming force to keep Israel secure. That approach has been accompanied by a rise in xenophobic and religious nationalism, with any discussion of Palestinians' civil rights confined to a dissident margin. The political mainstream has come to accept high levels of civilian casualties as the necessary cost of antiterror operations. These trends are subverting the character of Israeli democracy, once its greatest claim to moral authority in a region characterised by authoritarian regimes.

Israel stands at a crossroads. It can continue down the path of insular militarism and religious separatism to the point that it becomes an international pariah. Or it can set about repairing its credentials as a liberal democracy sincerely committed to peace. Ultimately, that would require stopping the settlement and withdrawing from land occupied since the war of 1967.

That, say Israeli politicians, is asking too much. The Arab world must first guarantee that Israelis will no longer be targeted by terror. But that argument is wearing thin. The Palestinian Authority has all but exhausted its political capital by clamping down on Hamas, Islamic Jihad and Fatah militants in the West Bank. That no progress is visible towards statehood in return only boosts the standing of fanatics among ordinary Palestinians.

If Israel wants to reduce the influence of the extremists, it needs to reward the efforts of the moderates. If Israeli politicians really want peace, they must start selling compromise to their own electorate instead of using public fear of terrorism as a reason not to make concessions.

Successful negotiations require movement on all sides, but since Israel has the most power on the ground, it also has the greater capacity to move the peace process forwards.

When Mr Netanyahu calls for peace, he means an end to armed attacks on Israel's borders. That is a legitimate demand to make. But the programme of absorbing occupied territory into the rest of Israel with Jewish settlements amounts to a demographic war being waged against the very idea of a Palestinian state. Only by reversing that policy can Israel get back its moral authority to speak about "partnership for peace".